Do you need financial advice?

If you are having problems balancing your household accounts or finding direction, personal finance expert Noel Whittaker tells how to move forward in this extract from his updated book, Making Money Made Simple


Good advice doesn’t cost — it pays.  Jim Rohn

Financial advice is a term with a multitude of meanings. One sense is general advice, such as recommending you get your debts under control before borrowing any more or making sure you have adequate insurance.

In the investment world we are more likely to talk about specific advice. This could be advice from a financial adviser about planning for the future, advice from an accountant about the appropriate vehicle to use to start a business, or advice from a solicitor about estate planning.

In Australia, it is illegal for anybody who is not appropriately licensed to give specific advice. An accountant or solicitor is the appropriate person in many cases, but they normally work closely with a financial adviser. The financial adviser must be licensed by ASIC, or be an authorised representative of an organisation licensed by ASIC.

If you are having problems balancing your household accounts or finding direction, you do not need a financial adviser, but a financial counsellor — they can be hard to find, but often your credit union or building society may offer these services, and occasionally the local school or college may have courses that can assist you. If you need taxation advice, such as whether to form a company or trust, or in what name to purchase a property, you should consult your accountant. Tax is the specialty of accountants and, although many financial advisers have a strong knowledge of tax, you should always be guided by what your own accountant says as well.

A good financial adviser can make a massive difference to your life. For the material in this chapter I spoke to six of Australia’s leading financial advisers and asked them a series of questions. The next two chapters are based on a composite of their answers to my questions.

Good, specific financial advice can help you identify your goals, develop strategies to achieve your financial goals, choose investments that will work with your goals and your risk profile, decide what insurance you need, and help you plan for retirement. There is no doubt that you will need specific financial advice at some stage in your life, but the big question is: do you need it right now?

Financial advice will cost you money, so you won’t want to be paying for advice until you have some money to worry about. So, the first step is to get your finances under control: make sure you are spending less than you are earning and your free cash is building up.

Then you can examine your options. If you are young, and your goal is to buy a car, or accumulate enough money for a house deposit, all you need to do is set your target and accumulate the funds in a bank account that is paying a reasonable amount of interest. If you are paying off your house, and meeting the mortgage payments on time, simply bank your spare money in an offset account attached to that mortgage. Insurance is important, but unless you have specific needs, you can cover that using the insurance option in the superannuation fund your employer’s contributions go into.

Once your mortgage is under control and you have a good cash surplus, you are stepping into a new world, where financial advice can make a huge difference to your future. There will be decisions such as whether to speed up the mortgage payments, or to start a separate investment program — by regular contributions or by borrowing

In fact, given the wide range of topics that advice can cover, even without a surplus, an event such as a pay rise, relationship separation, impending childbirth or simply a need to provide for retirement or for children’s education may trigger your need for advice. Also, there may well come a time when you are in line for an inheritance, and a financial adviser is the perfect person to advise you how best to invest for both long-term growth and maximum tax effectiveness. Remember, too, that restructuring your affairs could save you a lot of money, so if you have some assets behind you, it may be important to get specific advice focused on your needs, regardless of how much you have free to invest right now. If you are in a job where you may get sued for negligence, a financial adviser can also help you arrange your affairs for maximum asset protection.

An alarming trend is that many people who would benefit from specific financial advice – often those who need it the most – don’t seek it.

If your finances are under control, and you are prepared to seek help in mapping out your future and to meet with your adviser at least once a year to make sure your affairs are on track, you are a perfect candidate for financial advice.

The right adviser
What should you look for in an adviser? First, you need someone who is knowledgeable in the area you need advice in. For complex areas, such as aged care, running a self-managed superannuation fund, or salary packaging you should seek out an adviser who specialises in the field you are after.

Second, make sure the adviser is licensed to provide advice, so take the time to understand their background and education. The financial adviser register on the ASIC MoneySmart website allows you to check if an adviser is licensed, has the appropriate qualifications — and if they have had any disqualifications.

Third, look for a personality fit. There is no point having an adviser with a string of qualifications if you don’t work well together. You are looking for someone with whom you can have a productive and interactive relationship for many years. While you want someone with some experience, consider your own age, and avoid picking an adviser who is about to retire.

Also, I think it’s a good idea to ask them where they invest their own money.

Some advisers offer a free initial consultation to see if their services and personality are compatible with the potential client. Usually, this would be a 15-minute chat to determine what the client is seeking to achieve, whether the adviser can be part of that, and whether there is a good fit between the people.

However, if you are looking for a detailed proposal, it may involve several hours of research for the adviser and they may well charge a fee. Often, the fee will be refunded if the client goes ahead with the adviser’s recommendations.

I’ve always preferred a quick chat to start the process — it can save a lot of time on both sides if it becomes obvious quickly that what you are looking for is not the province of this particular adviser.

Paying for financial advice
Costs of financial advice vary. In response to recent rule changes, most advisers now work on a fee-for-service basis, like an accountant or solicitor. Previously, many advisers worked on a commission basis, so no upfront payment was necessary. However, it is still common for the fee to be deducted from the investments, which saves the client the necessity of having to find the money upfront.

The over-regulation of the financial advice sector means that every interview requires a mass of research and paperwork, which currently costs the client at least $3000. Because of this initial cost, some advisers said a potential client needs at least $200,000 to invest before seeking specific financial advice, but there is no hard and fast rule.

In an ongoing relationship, it is common to pay a flat annual fee, based on regular reviews of your situation.

I am regularly asked what is a reasonable fee, but there is no standard answer as it depends on the amount of work involved, the complexities of the investments and the client’s structure. Obviously, the more complex your situation the more fees you can expect to pay. Advisers are required to show all fees in detail: the main thing is to understand these clearly from the outset, then to make sure you are getting value for the fees. If at any stage you think the fees are excessive, or are not giving the value you hoped for, talk to your adviser.

Money clips

  • Try to decide at the outset just what you want the financial adviser to do. If you are uncertain, it’s fine to seek direction at the start.

  • If possible, start with a short meeting at no cost to decide if there is a possibility of a future good long-term relationship.
  • Make sure you are clear about what fees will be charged at the start, and what ongoing fees there will be.

  • Look for a good personality fit, and good reputation in the industry.


Making Money Made Simple – the ultimate guide to finance and investment in the 21st century, by Noel Whittaker, is available from all good bookshops.

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